Canada’s Changing Demographics Trigger an IT Offshoring Boom

Low population growth coupled with an aging workforce and relatively few young people pursuing a technical education has led to a boom in IT offshoring from Canadian firms. IDC Canada reports that over 50 percent of Canadian companies they surveyed this year were outsourcing at least 10 percent of their IT infrastructure-related tasks, up from 45 percent of companies in 2011 and less than 25 percent a decade ago.

While not all outsourcing by Canadian firms sends the work to another country, the vast majority of the outsourced work is done by individuals employed in India, China, Mexico, and the US. Mark Schrutt of IDC estimates that businesses in Canada will send between $2.5 and $3 billion dollars’ worth of work offshore in 2012.

Canadian Outsourcing

Except for a blip due to the recession in 2009-2010, IT offshoring has grown dramatically from Canada over the last decade for the same reasons it has with the US, Japan, and many European nations – high domestic IT labor costs mean businesses can save 30-50 percent by having their software development and network maintenance done abroad. Canada has a relatively small population and a low population growth rate, which means that even though Canadian universities are producing more technical graduates than a few years ago, the demand is still outstripping the supply in many areas such as software engineers or programmers in specialized languages.

While there are shortages of qualified technical talent in a number of areas in Canada (as in the U.S.), there is not an industry-wide shortage of lower-level IT personnel; it is simply more cost efficient for businesses to offshore that kind of work.

IT offshoring allows Canadian businesses to become more competitive and more productive, eventually leading to the hiring of more Canadians in other capacities.

Regardless of the politics of business and unemployment, when you throw in demographic factors like an aging (and therefore more expensive to hire) / slightly shrinking workforce in Canada, it is easy to understand why Canadian businesses are finding it increasingly necessary to offshore a wide variety of IT and other business tasks.

Offshoring Can Be a Win-Win

Offshoring is generally perceived by the public as a negative development. Surveys show people believe offshoring has led to the destruction of a number of industries, and is especially problematic in the sense of domestic citizens losing their jobs to foreign nationals. Politicians in many countries (including Canada) have played up this theme, trumpeting that businesses are pursuing cheaper labor at the expense of domestic workers under the guise of “globalization.”

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However, as Schrutt and others in the outsourcing industry point out, while the offshoring of IT jobs might mean some Canadians losing their jobs, it is a net positive for companies and the Canadian economy as a whole. Furthermore, IT offshoring allows Canadian businesses to become more competitive and more productive, eventually leading to the hiring of more Canadians in other capacities.

Jason Tressel of iGate Inc., a major Canadian outsourcing firm, also argues that offshoring is unfairly maligned as always leading to large layoffs. He says that many of the IT personnel whose positions are offshored end up moving into other positions at their companies, and that the net result is a good number of Canadians being “upskilled” into management positions. He says that since these management positions are typically higher-level jobs with at least equivalent pay.

Recently, the Canadian government (Foreign Affairs and International Trade Canada) also released a report showing that Canada’s participation in the “global value chain” was growing at a healthy pace.

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